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Uganda loses Shs130b in 2 months over coronavirus

The deserted departures lounge at Entebbe Airport yesterday. Manufacturers and traders who rely on supplies, especially from China and Europe, are facing challenges and are likely to shut down due to the coronavirus pandemic.PHOTO BY RACHEL MABALA Uganda has lost more than Shs130 billion between February and March because offshore investors, who have been investing in Uganda securities stopped, Bank of Uganda (BoU) has said.

Officials from Bank of Uganda say a number of investors exited Uganda’s economy, making investments in government securities decline.

They also say the global value chains are being disrupted by factory shutdowns and delayed resumption of operations. Domestic manufacturers and traders, who rely on supplies from China and Europe, are facing challenges and are likely to shut down if the coronavirus pandemic persists.

Mr Adam Mugume, the director for Research at BoU, told Daily Monitor that offshore investors have exited government securities market to seek safe investment havens.

“For instance, between February 21 and March 13, offshore holding of government securities declined by Shs130 billion. This, plus negative sentiments, resulted in the shilling depreciation against the US dollar from Shs3,676.9 in February to Shs3,820 as of March 20, a depreciation rate of 3.9 per cent,” he said.

This means that Ugandan currency value will continue to decline against the dollar if the coronavirus continues. Mr Mugume also said tourism, a major source of foreign exchange earnings, is shrinking as a result of declining demand and expanding travel restrictions.

According to him, imports will definitely decline. He said currently about 71 per cent of imports come from countries severely affected by coronavirus and are under lockdown.

“It might be impossible to get alternative sources in a short time. This suggests a severe supply disruption. Given that about 77.8 per cent of imports are raw materials and capital goods. This will gravely affect domestic production process,” he said.

Mr Mugume said domestic capital, human as well as financial resources, are becoming underutilised as workers in factories and tourism are being laid off or furloughed.

“Commodity prices are declining sharply. Whereas a decline in oil prices is beneficial to Uganda as an oil importer, the harm caused by decline in agricultural commodity prices, for instance coffee, outweighs the benefits of oil price decline,” he said.

“A combination of the exchange rate deprecation and supply disruption will ultimately result in higher inflation in the coming months. The uncertainty that it is creating is also likely to affect domestic […]

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